We have a customer that has CD's with very high balances. They complete a W-8BEN and we have coded their accounts as tax exempt. So the interest they earn never gets reported to the IRS at year end.

They are not in a country that has treaty benefits either. So my question is, are we doing it correctly? If they completed a W-8 BEN can they make all these interest and never have to pay taxes?

I might be wrong, but as I read the instructions, bank deposit interest is not subject to foreign-person withholding. The W8BEN is used to make sure the FI doesn't report the interest or withhold taxes.

It depends on where they are from:

Interest Income
If the interest income is paid by a U.S. bank, a U.S. savings & loan company, a U.S. credit union, or a U.S. insurance company to a nonresident alien, it is nontaxable and nonreportable (no 1099 or 1042-S reporting) unless the interest income is effectively connected with a U.S. trade or business. However, U.S. bank interest paid to a resident of Canada is reportable on Form 1042-S but is not subject to withholding (Treasury Regulation 1.6049-8(a)). If the interest income is "portfolio interest" and earned by a nonresident alien, then the interest income is reportable on Form 1042-S but nontaxable (Refer to Chapter 3 "Exclusions From Gross Income" - "Interest Income" – "Portfolio interest" in Chapter 3 of Publication 519, U.S. Tax Guide for Aliens). If the interest income is from any other U.S. source and paid to a nonresident alien, please refer to Publication 515 for the correct treatment for the type of interest income involved. Withhold at 30% or lesser tax treaty rate, if applicable (See Table 1 in IRS Publication 515 or 901). The beneficial owner of the interest income may claim the benefit of the tax treaty article which deals with "Interest income." The beneficial owner may claim the lesser tax treaty rate by filing Form W-8BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount of income is exempt under a tax treaty.


A nonresident alien individual should not deliver Form W-9 to a U.S. bank, U.S. savings and loan association, U.S. credit union, or U.S. insurance company. Instead, he should deliver Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding to such institutions in order to put them on notice that he is a nonresident alien and that the interest income accruing to his account at such institutions is not reportable to the IRS, except in the case of U.S. bank accounts held by residents of Canada.

thanks a lot for the information